The stock market witnessed a significant selloff in the first half of 2022, putting up a record worst performance in over 50 years. However, stocks rose in the last trading session to end the first day of the second half on a positive note. The Dow Jones Industrial Average rose 321.83 points to 31,097.26, while the S&P 500 rose 1.1% to 3,825.33, and the Nasdaq Composite was up by 0.9%.

Nonetheless, market volatility might persist amid the lingering inflation and even more monetary tightening by the Federal Reserve. The CBOE Volatility Index gained 55.1% year-to-date.

Despite this uncertain backdrop, Wall Street analysts see substantial upside potential in quality small-cap stocks Schrödinger, Inc. (SDGR), First Advantage Corporation (FA), Green Thumb Industries Inc. (GTBIF), Revolve Group, Inc. (RVLV), and InMode Ltd. (INMD). Thus, these stocks could be ideal additions to one’s watchlist now.

Although small-cap stocks tend to be riskier investments than large-cap stocks, they offer better returns in the long run.

Schrödinger, Inc. (SDGR)

SDGR and its subsidiaries provide a physics-based software platform that enables the discovery of novel molecules for drug development and materials applications. The company operates in two segments, Software and Drug Discovery. Its market capitalization is $1.97 billion.

On June 28, 2022, the U.S. Food and Drug Administration cleared SDGR’s investigational new drug (IND) application for its MALT1 inhibitor, SGR-1505. The clearance underlines the importance of digital chemical strategy in cancer research and is set for trials soon.

SDGR’s software products and services revenues came in at $33.08 million for the first quarter ended March 31, 2022, up 25.6% year-over-year. Its total revenues came in at $48.66 million, up 51.5% year-over-year. Also, its gross profit came in at $28 million, up 72.8% year-over-year.

Analysts expect SDGR’s revenue to increase 60.5% year-over-year to $282.38 million in 2023. Over the past month, the stock has gained 8.7% to close the last trading session at $27.74. Moreover, Wall Street analysts expect the stock to hit $64.00 in the near term, indicating a potential upside of 130.7%.

First Advantage Corporation (FA)

FA provides technology solutions for screening, verifications, safety, and compliance related to human capital worldwide. It is a leading global provider of innovative solutions and insights that help customers manage risk and hire the best talent. Its market capitalization is $1.97 billion.

On May 11, 2022, Scott Staples, CEO, said, “Looking ahead, we expect ongoing investments in M&A, automation, product innovation, and proprietary databases to create further operating efficiencies, lower costs, and enhance turnaround times. We will continue to execute our vertical go-to-market strategy and product innovation roadmap to grow revenues and Adjusted EBITDA.”

FA’s revenues increased 43.8% year-over-year to $189.88 million for the first quarter ended March 31, 2022. The company’s adjusted net income came in at $33.50 million, up 63.4% year-over-year, while its adjusted non-GAAP EPS came in at $0.22, up 37.5% year-over-year.

For fiscal 2022, analysts expect FA’s revenue to be $835.66 million, representing a 17.3% year-over-year rise. In addition, the company’s EPS is expected to grow 11.6% per annum for the next five years. It surpassed EPS estimates in each of the trailing four quarters.

The stock has declined 10.9% over the past month, closing the last trading session at $12.89. However, Wall Street analysts expect the stock to hit $26.20 in the near term, indicating a potential upside of 103.3%.

Green Thumb Industries Inc. (GTBIF)

GTBIF engages in manufacturing, distributing, and selling various cannabis products for medical and adult-use in the United States. It currently owns and operates around 77 retail stores in the United States. Its market capitalization is $1.88 billion.

GTBIF’s revenues increased 24.8% year-over-year to $242.60 million for the first quarter ended March 31, 2022. Its net income came in at $28.94 million, up 179.1% year-over-year, while its EPS came in at $0.12, up 140% year-over-year.

For fiscal 2023, analysts expect GTBIF’s revenue to be $1.30 billion, representing a 24.7% year-over-year rise. In addition, the company’s EPS is expected to increase 40.6% year-over-year to $0.45 in 2023. Also, it surpassed the consensus EPS estimates in three of the trailing four quarters.

The stock has declined 27.5% over the past month, closing the last trading session at $7.98. However, Wall Street analysts expect the stock to hit $34.00 in the near term, indicating a potential upside of 326.6%.

Revolve Group, Inc. (RVLV)

RVLV operates as an online fashion retailer for consumers in the United States and internationally. The company operates in two segments, REVOLVE and FWRD. Its market capitalization is $1.93 billion.

On May 3, 2022, co-founder and co-CEO Michael Mente said, “Our customer engagement is stronger than ever, driving incredible momentum in the business, and the return of our impactful, in-person events – such as REVOLVE Festival – is further strengthening our connection with the next-generation consumer.”

RVLV’s net sales increased 58.5% year-over-year to $283.50 million in the first quarter ended March 31, 2022. Its net income increased marginally year-over-year to $22.57 million, while its EPS remained unchanged at $0.30. Moreover, its adjusted EBITDA came in at $31.54 million, up 35.1% year-over-year.

For 2022, RVLV’s revenue is expected to grow 27.7% year-over-year to $1.14 billion. Its EPS is estimated to grow 29.3% per annum for the next five years. In addition, it surpassed the consensus EPS estimates in all of the trailing four quarters.

The stock has lost 7.5% over the last month, closing the last trading session at $26.36. However, Wall Street analysts expect the stock to hit $54.27 in the near term, indicating a potential upside of 105.9%.

InMode Ltd. (INMD)

Headquartered in Yokneam, Israel, INMD designs, develops, manufactures, and markets minimally invasive aesthetic medical products based on its proprietary radiofrequency assisted lipolysis and deep subdermal fractional radiofrequency technologies in the United States and internationally. Its market capitalization is $1.87 billion.

On June 15, 2022, INMD launched the EmpowerRF Women’s Wellness in Canada. Shakil Lakhani, INMD’s North American President, said, “The introduction of the EmpowerRF technology in Canada is a key milestone in our strategy to elevate the standard of care in feminine health globally. This further solidifies InMode’s commitment to delivering powerful therapies that address the unmet needs of this important market.”

INMD’s revenues increased 31.1% year-over-year to $85.92 million for the first quarter ended March 31, 2022. Its non-GAAP net income came in at $34.07 million, up 16.1% year-over-year. Also, its non-GAAP EPS came in at $0.40, up 17.6% year-over-year.

Analysts expect INMD’s revenue to increase 18.2% year-over-year to $422.52 million in 2022. Its EPS is estimated to increase 33.2% per annum for the next five years. It surpassed EPS estimates in each of the four trailing quarters.

The stock has lost 11.9% over the last month, closing the last trading session at $22.51. However, Wall Street analysts expect the stock to hit $51.67 in the near term, indicating a potential upside of 129.5%.

SDGR shares were trading at $27.74 per share on Monday morning, up $1.33 (+5.04%). Year-to-date, SDGR has declined -20.36%, versus a -19.14% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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